Unisem’s FY13 results exceeded our expectations but were  in line with consensus  estimates.  Post-briefing,  our  stance  on  the  company remains  unchanged.  Maintain  NEUTRAL  and  a  MYR0.95  FV,  based  on 0.7x CY14 P/NTA.  While we are encouraged by Unisem’s effective costsavings initiatives, we think business uncertainty still prevails given the sector’s short visibility

• Better than expected. Unisem’s FY13 core loss of MYR17.2m (+88% yo-y)  beat our expectations  (-MYR23.9m) but  was in line with consensus estimates.  In  4Q13,  it  posted  a  core  loss  of  MYR1.0m  (>-100%  y-o-y) due  to  lower  sales  volume and  average selling  prices (ASPs).  With  its 4Q13  utilisation  rate  similar  to  that  in  3Q13  at  around  60-65%,  its typically high  operating leverage dragged down overall profitability.  On a positive  note,  its  EBITDA  margin  has  been improving  for  the  past  four quarters (see Figure 2). The company declared a final  DPS of 2 sen (vs FY12’s 2 sen).
• Briefing highlights.  Management expects:  i)  1Q14 revenue to decline 5%  q-o-q  (-6%  y-o-y),  ii)  a  pickup  in  demand  from  new  and  existing customers  for its  wafer level chip scale packaging  (WLCSP)  services  in Ipoh,  and  iii)  growing  demand  for  its  micro-electro-mechanical  system (MEMS) microphones and pressure sensors in Chengdu, China.
• Forecasts and risks.  After incorporating Unisem’s full-year results  and lower opex assumptions into our model , we revise our FY14/15 earnings forecasts  upwards  by  43%/3%  respectively,  from  a  low  base.  The  key risks to our forecasts are: i)  the  strengthening of MYR against USD, ii) higher  raw  material  costs,  and  iii)  a  slowdown  in  the  semiconductor market.
• Valuation  and  recommendation.  We  maintain  our  NEUTRAL  call  on Unisem, with an unchanged MYR0.95  FV, based on 0.7x CY14 P/NTA, at  a  50%  discount  to  the  historical  5-year  sector  average  of  1.4x.  We think business uncertainty prevails as the sector’s visibility remains short. That said, Unisem is benefitting from its effective cost-savings initiatives, as evidenced by its improving quarterly EBITDA margins.

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Company Profile
Unisem is a leading semiconductor packaging and test services provider in Malaysia.

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Source: RHB